In this article, we’re going to talk about the 10 best major stocks to invest in according to analysts.
The Post-Fed Rate Cut Opportunities
The current economic landscape presents a mix of signals as market participants assess the necessity of additional interest rate cuts. Despite overall economic strength, the Fed has hinted at potential rate reductions due to weaknesses in specific sectors. Currency dynamics are also shifting, with the US dollar weakening against the euro, adding another layer of complexity to the market environment. Amidst this backdrop, major stock indices, including the Dow Jones, continue to hover near record highs.
As analysts and market participants navigate these developments, they must consider how these factors may influence investment strategies in the coming months. Recently, discussions have emerged regarding the implications of potential rate cuts and their effects on various sectors of the economy. Some experts argue that further cuts may be necessary to support smaller businesses and consumers who are still adjusting to previous interest rate hikes.
Stephanie Link, Chief Investment Strategist and Portfolio Manager at Hightower thinks that a soft landing for the economy despite market volatility is anticipated, which is a contrasting perspective amidst market volatility and uncertainty. While there are concerns regarding the performance of small-cap stocks and their ability to keep pace with larger assets, she thinks the economy may stabilize without entering a recession. We talked about this in more detail in our article on the 10 Best Young Stocks To Buy Now, here’s an excerpt from it:
“….She believes that the Fed is skillfully guiding the economy towards a soft landing, even amidst the expected market fluctuations before the elections.
Just 3 weeks ago, the S&P 500 had dropped by 4%. Still, it rebounded by 4% the following week. It rose another 1% last week, reaching new highs, and expressed optimism about buying opportunities during any market weakness, citing better-than-expected economic growth driven by recent data, including improved retail sales and manufacturing figures, as well as a decline in weekly jobless claims to a 4-month low. This positive economic backdrop supports an estimated growth rate of 2.9%, which is expected to benefit corporate earnings.
….Link noted a broadening market trend over the past couple of months, indicating that while tech has taken the lead, other sectors such as financials, industrials, materials, and discretionary stocks are also showing strength.”
John Stoltzfus from Oppenheimer Asset Management joined CBNC’s ‘Squawk on the Street’ on September 25 to discuss the difference the Fed’s recent rate cut makes. It was highlighted that the S&P 500 is experiencing a remarkable moment, having just achieved its 41st record close of the year. Oppenheimer’s Chief Investment Strategist has set a target of 5,900 for the index, attributing this optimistic outlook to the recent rate cuts by the Fed.
Stoltzfus explained that the significance of these cuts lies in their actual implementation after a long period of rate hikes and pauses. He described the rate cut as a down payment from the Fed to both Wall Street and Main Street, signaling that further cuts could be on the horizon if necessary. Since this announcement, the market has shown mixed reactions, with defensive stocks performing well at times while technology stocks have also seen gains.
When discussing consumer discretionary stocks, Stoltzfus expressed that this sector is one of their favorites despite its underperformance earlier in the year. He noted that there has been a noticeable improvement in performance over recent months as investors recognize consumer resilience. However, he emphasized that within consumer discretionary, investors should focus on select companies rather than expecting a broad rally across the sector. Retailers leveraging e-commerce effectively are likely to perform better during the upcoming holiday season.
The conversation also touched on concerns regarding discounts in various sectors, particularly electronics. Stoltzfus acknowledged that value has become a key focus for consumers, which has led to increased competition among retailers. This competition allows consumers more options but may also pressure profit margins for some retailers. Nonetheless, he pointed out that many businesses within consumer discretionary, beyond just retail, are likely to maintain healthy margins.
Stoltzfus’ discussion highlighted the positive impact of the Fed’s rate cuts on market sentiment and consumer behavior while recognizing challenges in specific sectors. The outlook remains optimistic as investors navigate through these transitions and prepare for potential opportunities in consumer discretionary stocks and other sectors. With that said, we’re here with a list of the 10 best major stocks to invest in according to analysts.
Methodology
We used stock screeners to look for mega cap stocks. We then selected the top 10 stocks with the highest upside potential (more than 15%), that were also the most popular among elite hedge funds, as of Q2 2024. The stocks are ranked in ascending order of their upside potential.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Major Stocks to Invest In According to Analysts
10. Chevron Corp. (NYSE:CVX)
Average Upside Potential: 18.14%
Market Cap as of September 26: $263.18 billion
Number of Hedge Fund Holders: 64
Chevron Corp. (NYSE:CVX) is a multinational energy corporation predominantly specializing in oil and gas, and it’s the second-largest direct descendant of Standard Oil, originally known as the Standard Oil Company of California. It primarily focuses on exploring, producing, and refining crude oil and natural gas, also operating in the areas of chemical manufacturing and renewable energy.
The company is investing in clean and renewable energy. In May, it successfully operated a gas turbine on a 60% hydrogen fuel blend. Additionally, it owns a 16.5-megawatt wind farm in Wyoming capable of powering 13,000+ homes annually, and a 49 MW geothermal facility in California, powering 40,000 homes. The company also distributes renewable diesel made from vegetable oils and animal fats at California terminals, offering diesel blends with 6-20% renewable content.
Chevron Corp. (NYSE:CVX) successfully ran a gas turbine on a 60% hydrogen fuel blend for several days, demonstrating the potential of hydrogen as a cleaner fuel source for industrial processes. The turbine is located near the company’s Pipeline & Power Business Unit facility in California.
By Q2, it had increased global production by 11%, with a revenue improvement of 4.67% year-over-year for the quarter, with the help of acquisitions and strategic alliances. The company integrated PDC Energy and expanded its exploration base in Namibia, Brazil, Equatorial Guinea, and Angola. In the US, net oil-equivalent production increased by 353,000 barrels per day compared to 2023.
This company is a strong investment choice due to its diversified operations, strong financial position, and consistent shareholder returns. Its integrated energy model, combined with a low debt-to-equity ratio and robust cash flow generation, provides stability and flexibility in the volatile energy sector.
Carillon Eagle Growth & Income Fund stated the following regarding Chevron Corporation (NYSE:CVX) in its fourth quarter 2023 investor letter:
“Chevron Corporation (NYSE:CVX) traded lower, along with oil prices, and issued a disappointing earnings announcement due to overseas refining losses. Separately, the company announced an agreement to buy another energy company with operations offshore of Guyana, as well as in North Dakota, the Gulf of Mexico, and the Gulf of Thailand. This is a strategic acquisition for very little takeout premium.”
9. AstraZeneca (NASDAQ:AZN)
Average Upside Potential: 20.22%
Market Cap as of September 26: $239.88 billion
Number of Hedge Fund Holders: 49
AstraZeneca (NASDAQ:AZN) is a British-Swedish multinational pharmaceutical and biotechnology company that focuses on research, development, manufacturing, and marketing of prescription medicines. Its primary therapeutic areas include oncology, cardiovascular, renal, respiratory, and immunology, and is known for its innovative drug pipeline and strong global presence.
It has a diversified product portfolio including 12 blockbuster medicines with sales exceeding $1 billion in number of indications. It’s expanding into heart health, immune system research, rare diseases, and new cancer therapies. A recent milestone this year is the approval of Voydeya, a medication for treating hemolysis outside the blood vessels in adults with paroxysmal nocturnal hemoglobinuria (PNH).
The company has 3 promising drugs in development: Imfinzi for small-cell lung cancer, Tagriso for stage three lung cancer, and Enhertu for brain metastases from breast cancer. These drugs are in advanced stages of development.
Imfinzi recently received FDA priority review in August after demonstrating a 27% reduction in the risk of death in the ADRIATIC phase III trial. Enhertu achieved a 62% progression-free survival rate in the DESTINY phase III trial. However, the company’s shares declined by 5% in September following disappointing results for its lung cancer drug, DATO-Dxd.
All of these expansions brought a revenue of $12.94 billion in Q2 2024, up 13.33% from a year-ago period. Product revenue made up 96% of total sales. The company’s HER2 franchise also delivered a strong performance, with total revenues increasing 49% in the quarter.
With a strong pipeline of innovative drugs, patent protection, and strategic pricing decisions, AstraZeneca (NASDAQ:AZN) is poised to continue expanding its revenue and market share. The focus on life-threatening diseases with acute treatment reduces litigation risks, while the company’s pricing power ensures strong financial performance.
Parnassus Growth Equity Fund stated the following regarding AstraZeneca PLC (NASDAQ:AZN) in its Q2 2024 investor letter:
“AstraZeneca PLC (NASDAQ:AZN) gained after announcing robust first-quarter results and setting 2030 targets at an Investor Day that were above consensus expectations. We continue to believe that AstraZeneca’s robust pipeline and industry-leading innovation in oncology should support above-expectation revenue growth for the next several years.”
8. Merck & Co. Inc. (NYSE:MRK)
Average Upside Potential: 21.44%
Market Cap as of September 26: $292.00 billion
Number of Hedge Fund Holders: 96
Merck & Co. Inc. (NYSE:MRK) is a multinational pharmaceutical company that does business as Merck Sharp & Dohme or MSD outside the US and Canada. It’s a leading global healthcare company that focuses on developing innovative medicines and vaccines in areas including oncology, infectious diseases, cardiovascular, neuroscience, immunology, and women’s health.
Revenue growth in the second quarter of 2024 was 7.16% as compared to Q2 2023, driven by growth across its business segments. The Human Health business grew by 11% year-over-year, the Animal Health segment increased sales by 6%, and the company’s star cancer drug, KEYTRUDA, saw sales rise of 21%. In vaccines, GARDASIL sales increased 4%, while VAXNEUVANCE sales grew 16% year-over-year.
A lot of its growth is attributed to the patent for KEYTRUDA’s formulation, which is set to expire in 2028 and could impact future growth.
Earlier this year, it received FDA approval and ACIP recommendation for its new pneumococcal conjugate vaccine, CAPVAXIVE, for adults. The WINREVAIR vaccine for adult patients with pulmonary arterial hypertension was also approved by the FDA, and generated $70 million+ in sales during the quarter, with 40% of sales coming from patient doses.
It acquired Elanco’s aqua business to position itself as a leader in animal health. The company also acquired EyeBio in July to enter the ophthalmology market and develop treatments for retinal conditions.
The company is set for continued growth as it continues to rapidly expand in international markets. Merck & Co. Inc.’s (NYSE:MRK) diversified drug portfolio and global presence have fueled strong financial results. The acquisition of Harpoon Therapeutics is expected to further enhance its oncology pipeline and create opportunities for innovative combination therapies.
Carillon Eagle Growth & Income Fund stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its first quarter 2024 investor letter:
“After posting lackluster returns in 2023, Merck & Co., Inc. (NYSE:MRK) got off to a strong start in January by raising the long-term sales forecasts for its oncology and cardiology pipelines and reporting solid fourth-quarter results, coupled with strong financial guidance for 2024. Merck shares also finished the quarter strong after receiving U.S. Food and Drug Administration approval in late March for a new cardiology medicine with the potential to contribute significantly to sales growth over the next several years.”
7. NVIDIA Corp. (NASDAQ:NVDA)
Average Upside Potential: 21.48%
Market Cap as of September 26: $3026.02 billion
Number of Hedge Fund Holders: 179
NVIDIA Corp. (NASDAQ:NVDA) is a multinational corporation and technology company that specializes in designing and manufacturing graphics processing units (GPUs). These GPUs are used in a wide range of applications, including gaming, professional visualization, artificial intelligence, and data centers.
Revenue in FQ2 2025 grew 122.4% year-over-year, driven by a 54% increase in data center revenue, where cloud service providers accounted for ~45% of data center revenue. Strong demand for NVIDIA Hopper, GPU computing, and networking platforms fueled this growth. For FQ3, the company expects total revenue to be $32.5 billion
Elon Musk’s xAI startup has launched Colossal, the world’s most powerful AI training system. It’s Powered by NVIDIA Corp.’s (NASDAQ:NVDA) H100 GPUs, with an upcoming shift to H200 GPUs. and eventually Blackwell chips.
It also has expansions in healthcare. Its Clara platform, an AI-powered suite of tools, is empowering healthcare providers and researchers to process vast datasets quickly and accurately for applications like diagnostics, drug discovery, and data analysis.
Just a few days back, NetApp launched a new GenAI data vision and end-to-end integrated solution powered by NVIDIA AI. Management estimated annual spending on data center infrastructure at $250 billion, with potential growth to $1-2 trillion over the next decade.
The demand for computing power to train large AI models is growing rapidly. By 2027, 3 frontier models with 50 trillion parameters each could require 20 million chips for training. Companies like NVIDIA Corp.’s (NASDAQ:NVDA) are leading in training and inference. Inference will be crucial for monetizing AI models. Such factors show how the company is poised to maintain its position in the industry.
Ithaka US Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:
“NVIDIA Corporation (NASDAQ:NVDA) is the market leader in visual computing through the production of high-performance graphics processing units (GPUs). The company targets four large and growing markets: Gaming, Professional Visualization, Data Center, and Automotive. NVIDIA’s products have the potential to lead and disrupt some of the most exciting areas of computing, including: data center acceleration, artifi cial intelligence (AI), machine learning, and autonomous driving. The reason for the stock’s appreciation in the quarter was twofold: First, the stock benefi ted from tremendous excitement surrounding the further development of generative AI and the likelihood this would necessitate the purchase of a large number of Nvidia’s products far into the future; Second, Nvidia posted another strong beat[1]and-raise quarter, where the company upped its F2Q25 revenue guidance above Street estimates, showcasing its dominant position in the buildout of today’s accelerated computing infrastructure.”
6. Adobe Inc. (NASDAQ:ADBE)
Average Upside Potential: 22.52%
Market Cap as of September 26: $229.26 billion
Number of Hedge Fund Holders: 107
Adobe Inc. (NASDAQ:ADBE) is a global software company that provides a wide range of creative, marketing, and document management solutions. Their products are used by professionals in industries such as graphic design, photography, video editing, web development, and marketing. Adobe is known for its innovative software, strong brand recognition, and commitment to empowering creatives and businesses to achieve their goals.
Over the past 4 years, revenue has grown at a compound annual growth rate of 15.26%. AI-powered enhancements in products like Adobe Firefly have increased customer engagement and retention across Creative Cloud, Document Cloud, and Experience Cloud. Document Cloud sales reached $807 million in FQ3 2024, up 18% year-over-year, highlighting the positive impact of AI on Adobe’s operations.
However, Adobe Inc. (NASDAQ:ADBE) is facing a bit of a complex situation in the AI landscape. While AI tools are becoming more accessible and affordable, posing a potential threat to the company, it is also investing heavily in AI-powered solutions to enhance its product offerings. Its ability to leverage AI effectively will determine its future success.
Overall revenue in FQ3 2024 was $5.41 billion, up 10.59% year-over-year. The Digital Media segment increased by 12%, and net new Digital Media ARR reached $504 million, primarily contributed by Creative and Document Cloud. The Digital Experience segment also grew 12%. The earnings per share in this period were $4.65.
Through its $25 billion share repurchase program, which is ongoing until 2028, Adobe Inc. (NASDAQ:ADBE) has reduced its outstanding shares by 10%. The company has a market share of over 80% in the graphic design industry due to its years of product development. It is well-positioned to benefit from the growing graphic design software market. With a strong focus on AI integration and a large total addressable market, the company is expected to continue growing at a healthy rate.
Polen Global Growth Strategy stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its Q2 2024 investor letter:
“With Adobe Inc. (NASDAQ:ADBE), in some ways, we see it as a microcosm of the market’s “shoot first, ask questions later” approach to categorizing AI winners and losers. In the early part of last year, Adobe came under pressure with a perception that generative AI (GenAI) would represent a material headwind to their suite of creative offerings. In short order, the company introduced its GenAI offering, Firefly, which shifted the narrative to Adobe as a beneficiary with a real opportunity to monetize GenAI in the near term. Earlier this year, that narrative was again challenged as the company reported a slight slowdown in revenue growth. Results in the most recent quarter were robust as the company raised its full-year forecast across a number of key metrics and showcased better-than-expected results.”
5. Novo Nordisk (NYSE:NVO)
Average Upside Potential: 23.27%
Market Cap as of September 26: $422.71 billion
Number of Hedge Fund Holders: 67
Novo Nordisk (NYSE:NVO) is a global healthcare company that specializes in diabetes and obesity care and rare diseases. They develop, manufacture, and market insulin and other diabetes medications. Novo Nordisk is known for its leadership in the diabetes market, innovative product pipeline, and commitment to improving the lives of people with diabetes.
This company is a dominant player in the GLP-1 weight loss market. With a 69% global market share, Ozempic leads the way at 46%. The success of Ozempic has driven a 64% increase in the company’s trailing 12-month revenue. Its long-term prospects remain strong, as the market for obesity-fighting drugs is expected to exceed $130 billion by 2030.
Revenue for the second quarter of 2024 was $9.96 billion, up 24.50% year-over-year, driven by both operating units, with North American operations growing 36% and international operations growing 11%. In the US, sales growth was positively impacted by gross-to-net sales adjustments related to prior years.
The GLP-1 sales increased in diabetes by 32%, insulin sales increased by 10%, Obesity Care sales increased by 37%, and Diabetes Care sales grew by 25%. The total global diabetes value market share resultantly increased to 34.1%, offset slightly by rare disease sales decreased by 3%
The company’s stock is up 44% over the past year primarily on the back of its Wegovy weight loss drug, which was approved in China in late June. Its expertise in diabetes drugs, which are precursors to weight loss treatments, has enabled the company to stay ahead in researching new weight loss therapies.
With over 42 million patients taking the company’s diabetes and obesity treatments, Novo Nordisk’s (NYSE:NVO) focus on expanding access to obesity treatments is expected to drive long-term growth.
Artisan Global Equity Fund stated the following regarding Novo Nordisk A/S (NYSE:NVO) in its Q1 2024 investor letter:
“In addition, shares of Novo Nordisk A/S (NYSE:NVO) rose after it reported phase 1 clinical trial results for its new experimental obesity drug Amycretin, a single molecule that operates as a GLP-1 receptor agonist, reducing one’s appetite. The new oral treatment achieved a 13.1% average weight loss after 12 weeks, more than doubling the efficacy of Wegovy for the same time span. This result also bested Lilly’s Orfoglipron, another experimental drug that achieved 5%–6% average weight loss earlier in its trials. While the Amycretin data are preliminary, investors were encouraged by the prospects of Novo Nordisk solidifying a best-in-class obesity designation, a desirable status given rising competition. In our view, Novo Nordisk has the best obesity/Type 2 diabetes pipeline in the industry, which should help protect this franchise from competition over the next 10 years.”
4. Shell (NYSE:SHEL)
Average Upside Potential: 24.36%
Market Cap as of September 26: $211.73 billion
Number of Hedge Fund Holders: 49
Shell (NYSE:SHEL) is a British multinational oil and gas company. It primarily focuses on exploring, producing, and refining crude oil and natural gas, also operating in the areas of renewable energy and chemicals. It is known for its extensive global operations, commitment to providing energy solutions, and efforts to reduce its environmental impact. During the first half of 2024, 92% of its exploration, upstream, and renewable revenue came from natural gas or renewable sources.
The company is investing $10 to $15 billion in low-carbon energy solutions between 2023 and 2025 to transition away from fossil fuels and focus on renewable energy sources like wind, solar, and hydrogen. Management believes LNG will play a key role in the energy transition and plans to expand its LNG business by 20-30%, aiming to increase LNG volumes by 15-25% by 2030. It’s acquiring Pavilion Energy Pte. Ltd., a Singapore-based global LNG trading company for ~$1.2 billion, which is expected to be completed by Q1 2025.
It has invested in technology for exploration purposes, using geophysical data to develop advanced methods for oil and gas discovery. The merger with BG Group provided a significant competitive advantage, particularly in Brazil and Australia. Shell (NYSE:SHEL) expects to increase oil production by ~500,000 barrels per day by 2025.
In Q2 2024, it made $74.46 billion in revenue, although this was a drop of 0.15% from the year-ago period, due to lower oil prices, decreased production levels, and market volatility. Its largest business is its marketing division which includes revenue from selling wholesale commercial fuels, earning the firm $62 billion in sales in H1, which was 42% of the firm’s overall sales.
While its marketing division remains a significant contributor, the company’s pivot to natural gas and LNG positions it well for the future. Its investment in clean energy demonstrates its commitment to sustainability and innovation, again positioning it for long-term growth.
Third Point Management made the following comment about Shell plc (NYSE:SHEL) in its second quarter 2023 investor letter:
“We initiated a position in Shell plc (NYSE:SHEL) in the summer of 2021 and highlighted the company’s significant discount to intrinsic value as well as to US-listed peers after decades of poor performance. While shares have performed well since we initiated the investment, the company still trades at staggering discount to intrinsic value and represents a compelling investment at current levels. We initially argued (and still believe) that the fastest path to improved performance and better valuation would be a separation of Shell’s business units to better attract shareholders and improve accountability, the latter of which was essential when the company was in the hands of executives who had demonstrated virtually no focus on shareholder value creation.
The most important change at Shell over the past two years has been the upgrade in the management team, with the appointments of Wael Sawan as CEO and Sinead Gorman as CFO. They have demonstrated an unwavering commitment to shareholder value, capital discipline, and improved returns. At their recent analyst day, Mr. Sawan stated “underpinning all that we do will be a ruthless focus on performance, discipline, and simplification.” It was the third time they used the term “ruthless” in their presentation, sending a strong message to shareholders…” (Click here to read the full text)
3. Alphabet Inc. (NASDAQ:GOOGL)
Average Upside Potential: 26.68%
Market Cap as of September 26: $1989.17 billion
Number of Hedge Fund Holders: 216
Alphabet Inc. (NASDAQ:GOOGL) is a multinational technology conglomerate holding company, best known for its subsidiary, Google, focusing on technology-related products and services, including internet search, cloud computing, artificial intelligence, hardware, and software development, and is known for its innovative products, strong brand recognition, and commitment to advancing technology.
Google maintains a dominant position in the search engine market, with approximately 91.06% market share, and is continually improving Gemini and developing AI hardware. While Google’s TPUs (Tensor Processing Units) only hold about 20% of the market, their advancements promise increased market share. Additionally, Google’s 6th generation chips are 67% more energy efficient than their predecessors.
The company is investing heavily in AI, with plans to spend $50 billion by the end of 2024. Its strong competitive advantages, including its algorithms, AI expertise, and valuable data access, position it well for future growth in this segment. Over 60% of GenAI startups and 90% of GenAI unicorns are customers of the Google Cloud.
Alphabet Inc. (NASDAQ:GOOGL) is anticipated to reach $100 billion in combined revenue from YouTube Ads and Google Cloud by the end of 2024. In Q2, Google Cloud revenue grew 28.8%, contributing to an overall revenue increase of 13.59%.
Its Waymo division is a major player in the autonomous driving industry, with 700+ cars operating in San Francisco alone. It has faced criticism for incidents like fires, crashes, and traffic violations. Despite these challenges, Waymo offers robotaxi services and has reported providing 100,000 rides in San Francisco, Los Angeles, and Phoenix.
The company’s strong competitive advantages, including its AI expertise and valuable data, combined with its dominant position in search and mobile, make it a leading beneficiary of the growing AI market. Alphabet’s focus on innovation and cost efficiency positions it for long-term success.
Patient Capital Management stated the following regarding Alphabet Inc. (NASDAQ:GOOGL) in its Q2 2024 investor letter:
“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
2. Taiwan Semiconductor Manufacturing Company (NYSE:TSM)
Average Upside Potential: 33.04%
Market Cap as of September 26: $943.37 billion
Number of Hedge Fund Holders: 156
Taiwan Semiconductor Manufacturing Company (NYSE:TSM) is a semiconductor contract manufacturing and design company, focusing on integrated circuits (ICs) for other companies, known for its advanced manufacturing technology, high-quality products, and strong customer base.
It’s a leading semiconductor foundry and dominates the market with over 50% share in manufacturing chips for fabless companies. Renowned for its cutting-edge technology, it produces advanced 2nm and 3nm nodes, powering major tech giants. It makes up 60% of the total chip and 90% of the advanced chip manufacturing industry.
In collaboration with Ansys and Microsoft, the company has significantly accelerated silicon photonic simulations using Azure’s AI infrastructure. This partnership has achieved a 10x speedup in Ansys’ Lumerical FDTD software, enabling faster and more accurate simulations for complex multiphysics silicon solutions. It’s also producing Apple’s A16 chips at its Arizona facility. While initial production is limited, it’s expected to significantly increase once the plant’s expansion is complete in early 2025.
Revenue surged 33.3% in the second quarter of 2024, driven by strong demand for its advanced 3nm, 7nm, and 5nm technologies, which together accounted for 67% of wafer revenue. The 7nm node was the most popular, contributing 35% of wafer revenue. Notably, HPC platforms made up over half of TSMC’s Q2 revenue for the first time.
The company’s leadership in advanced processes drives customer growth, stable production, and lower costs. Management estimates a 10% growth in the overall semiconductor market (excluding memory) for the full year 2024. Its dominant position in the semiconductor industry is bolstered by its long-standing partnerships with major tech companies and its reputation for superior quality.
Diamond Hill Long-Short Fund stated the following regarding Taiwan Semiconductor Manufacturing Company (NYSE:TSM) in its Q2 2024 investor letter:
“On an individual holdings’ basis, top contributors to return in Q2 included our long positions in Alphabet, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Microsoft. Semiconductor manufacturer Taiwan Semiconductor’s (TSMC) fundamentals remain solid as demand for its chips continues growing — particularly as the machine learning and cloud computing trends gain more traction.”
1. ASML Holding (NASDAQ:ASML)
Average Upside Potential: 40.90%
Market Cap as of September 26: $320.99 billion
Number of Hedge Fund Holders: 81
ASML Holding (NASDAQ:ASML) is a Dutch multinational corporation that specializes in the development and manufacturing of photolithography systems, which are essential tools used in the semiconductor manufacturing process to create tiny patterns on silicon wafers. These patterns form the basis of integrated circuits (ICs). It’s known for its advanced lithography technology, high-quality products, and dominant market position.
The company holds a unique position as the sole supplier of EUV and high NA EUV lithography machines, essential for producing advanced 5nm, 3nm, and 2nm chips. This technological monopoly gives it a significant competitive advantage.
While it has consistently achieved strong revenue growth over the past decade, with an average annual increase of 18.42%, the company faces headwinds in 2024. Cautious customer spending, supply chain disruptions, and economic uncertainties are expected to limit revenue growth to just 0.4% and may lead to a slight decline in net income. Following this pattern, the revenue in the second quarter of 2024 dropped 11.69% year-over-year. The revenue generated was mainly attributed to the Logic and Memory and improvements in inventory levels.
Recently, the company’s stock price experienced some decline amid concerns over potential US restrictions on chip equipment exports to China. Yet its stock has experienced remarkable growth, surging 190% in the past 5 years and a staggering 755% in the past decade. Dutch Prime Minister Rutte also recently indicated that the government would consider ASML Holding’s (NASDAQ:ASML) economic interests when deciding on stricter export controls to China.
Its innovative lithography systems are crucial for the production of advanced microchips, powering the growth of AI and other cutting-edge technologies. With its recent breakthrough in EUV technology and strong demand across various industries, it is well-positioned for continued success in the semiconductor market.
Polen International Growth Strategy stated the following regarding ASML Holding N.V. (NASDAQ:ASML) in its fourth quarter 2023 investor letter:
“Netherlands-based ASML Holding N.V. (NASDAQ:ASML) and Japan-based Lasertec play dominant roles within different segments of the global semiconductor industry. In both cases, shares rallied significantly in the fourth quarter of 2023, prompting our positions to grow as a percentage of the overall portfolio. We believe both companies will see demand for their products as extreme ultraviolet (EUV) lithography and soon high-numerical aperture lithography must be utilized to manufacture the world’s smallest chips. However, in our estimation, 2024 could deliver a year of less exciting growth for the semiconductor industry, which prompted us to trim these positions back.”
While we acknowledge the growth potential of ASML Holding (NASDAQ:ASML), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ASML but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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